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ACVs in IT Outsourcing Lowest in 10 Years

IT Outsourcing Annual Contract Value

According to an online survey done by research firm Information Services Group (ISG) on 500 top IT leaders, the first quarter of 2015 recorded the lowest annual contract value of closed deals in IT outsourcing in the last 10 years.

It was discovered that only $3.5 billion in annual contract value was closed in the first quarter, which is 27 percent lower than the first quarter of 2014.

John Keppel, President at ISG, said weakness was recognized in the mega-deal market for the first quarter, but contract values were particularly dragged by weakness in the Asia-Pacific and Europe, Middle East, and Africa (EMEA) regions.

He added that Asia Pacific’s performance almost peaked during the first quarter of last year, making it hard to compare with this year’s performance. However, even with its robust outsourcing environment and positive outlook, the region was still included in the list due to its recent performance.

ISG pointed out that coming from one of its strongest years, the slowdown in the IT outsourcing industry was expected. This is due to the fact that 2014 had stable buyers’ market, a rise in contract restructuring, and an increase in mega relationships. But, the agency’s analysts noted that the slow start in 2015 is not an indication of the industry’s future.

Meanwhile, IT outsourcing activity in the US is anticipated to remain strong throughout the year, and the slowdown in Asia-Pacific and EMEA are considered as positive signs that there’s more for the industry down the line. In line with that, the market and segment itself are continuously evolving - making way for new opportunities, improved flexibility and capabilities, and lower costs.

Keppel also pointed out that buyers are still looking for the perfect combination through testing. They are also found willing to switch providers to achieve the results that they want. This can go from market testing current provisions to evolve into a more modern, cloud-enabled IT sourcing solutions setup.

As for larger deals (contracts worth over $30 million annually), a 25-percent decline was seen in terms of volume and value compared to last year. Smaller deals, on the other hand, are stable and at a steady flow.